Written Commentary
HOGS
Demand news looks quite positive short-term as the monthly cold storage report showed total frozen pork inventory fell in July to the lowest level for any month in nine years. In addition, US and China trade officials reaffirmed the phase 1 trade deal in a phone conference call overnight. The cold storage news comes on the heels of news that China imported a record 430,000 tons of pork in July. Frozen pork supply at the end of July came in at 458.9 million pounds, down from 460.2 million pounds at the end of June and 611.7 million pounds last year. Stocks were down just 0.3% for the month as compared with the 10-year average decline of 2.8%. While a bit overbought, the short-term news flow may hold the market in a consolidation.
CATTLE
The bearish cattle-on-feed report on Friday combined with talk of the overbought condition of the market helped to trigger a gap lower opening yesterday and the market is threatening to break-out to the downside of the April-August uptrend channel. In order to expect a further downside correction, the market will need to see weakness develop in the beef market and an increase in the slaughter pace. The bearish tilt to the USDA cattle on feed report would suggest the slaughter pace can pick up, but beef demand remains surprisingly strong. If beef prices stay firm, it is unlikely to see a setback in cash markets. However, the hot and dry conditions for much of the Western US is a serious supply threat as cattle move to feedlots or to the market in areas which have seen a loss of pasture and range conditions. The break over the last few days could be a result of this “fear” of a bulge in beef production short-term.
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